Finding Value in China

17 May 2019

A value contrarian investing approach which focuses on identifying intrinsic value of individual companies across the breadth of the Chinese Market, rather than identifying investment themes, is the driving force behind Fidelity China Fund.

That direction helped them secure the win in this year’s Money Management Global Emerging Market Equities category.

Jing Ning, portfolio manager for the Fidelity China Fund, said the fund expected to generate a healthy performance in a market driven by fundamentals.

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“In a market where investors often come seeking growth opportunities and willing to pay premium valuations for it, I believe value opportunities are available across all sectors in China and at attractive valuations,” Ning said.

“Periods of mean reversion would be a highly favourable environment for the fund’s performance.”

“In contrast, given I have a long value/short growth style, growth rallies impact short-term returns.”

The fund’s performance success was attributed to overall security selection, driven over a variety of sectors including information technology, health care, real estate, materials and industrials.

“Over the last 12 months to 31 March 2019, the fund posted healthy absolute returns and delivered noteworthy excess returns compared to its index,” Ning said.

“This goes to demonstrate that a well-developed value strategy can contribute meaningful alpha.

“At individual security level, the key contributors were positions that were initiated at discounted valuations after identifying that short-term disappointment had overshadowed their structural growth potential.”

The fund a clear preference for durable business models that offer earnings visibility from a three to five-year perspective.

“I look for out of favour opportunities, where sentiment is subdued by short term issues or cyclical factors, but underlying long-term fundamentals remain intact and the company can return to normal profitability/growth,” Ning said.

“Such stocks are therefore unnoticed or overlooked by the larger market and trade at attractive asset-based valuations.”

The stock selection had been the mainstay of the significant alpha generation over Ning’s tenure.

Finalist Colonial First State’s Asian Growth Fund defined quality companies as those that had an effective management team, high governance standards, a long-term mind-set, strong competitive advantages and an established track record of surviving previous cycles.

Robeco’s Jan Sytze Mosselaar, Portfolio Manager Conservative Equities, said their fund was a rules-based defensive equity fund, or a so called low-volatility fund.

“We provide investors with a diversified, actively positioned portfolio of EM stocks that exhibits lower risk than the market, combined with a high dividend yield, attractive valuation and positive momentum,” she said.

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